The rise of energy poverty in Australia – both a social and moral issue

Cassandra Hogan, National Power and Utilities LeaderBernard Salt, Special Adviser, KPMG

The release of the Australian Census data every five years offers a wealth of data about Australian residents. Match it with the Household Expenditure Survey (HES) which tracks money flows into and out of households and the picture becomes even clearer. This dataset goes back 30 years so it is now possible to track how Australians have spent their money over time.

The rising cost of energy is of concern to all Australians. Access to affordable energy is a fundamental need, whether it is to drive manufacturing plants or just to keep workers and their children warm at night.

The HES shows the average Australian household spent $42.92 on domestic energy every week during the 2016 financial year. When compared to 2010, the figure is $32.52 a whopping 26 percent increase.

But this doesn’t really reflect the real picture and a much better indicator is cost per person. What this shows is the disparity between rich and poor, with the per capita spend for the poorest people only about $3.00 a week less than the richest.

The issue is that 42,000 households are both low-income (less than $650 per-week) and large (5+ persons) which means that the fixed cost of energy rises as a proportion of household income. A pensioner couple’s weekly energy costs of an estimated $31 is 5 percent of a weekly income of $650. A low-income family of five has an estimated weekly energy cost of $77.85 which is 12 percent of a weekly income of $650. All low income households, including pensioners, struggle with energy and other costs but on average large families are especially vulnerable because of the fixed per-capita cost of energy.

The rising cost of energy forces a rethink of household budgets and priorities. It affects a household’s quality of live in a very real way since energy is a fixed as opposed to a discretionary cost. The bigger the household the bigger the energy costs. It’s a simple but devastatingly effective equation and it affects more than 200,000 children.

The issue of energy poverty is both an economic and a moral issue. It is the most critical issue in the current energy ‘trilemma’ for consumers. There will continue to be pressure on electricity prices for the foreseeable future which will place continued pressure on electricity affordability on Australian households.

So what can be done?

The Independent Review into the Future Security of the National Electricity Market led by Dr Alan Finkel highlights consumers at the centre of the energy transition process. If they are properly empowered and financially incentivised they can make a key contribution to lower energy prices through effective demand management; to reduce future network and generation costs and put power back in the grid.

To realise this, customers have to look to technology: battery storage, home energy management systems, smart energy efficient appliances to change their usage or to access more affordable energy. But this needs energy retailers to make the data easily accessible.

This is a function of both awareness and insight: it is one thing to know that you are on track to a larger than usual bill, another thing to be able to change your behaviour to reduce usage. This is because even in households with smart meters it is difficult for consumers to understand specifically which appliances are driving the usage changes.

And for the most vulnerable consumers access to this technology is difficult and often expensive and could add an additional financial burden on their already stretched finances.

So what measures can governments and energy retailers take to alleviate energy affordability?

There are three broad areas.

Subsidise the vulnerable customer through concessions/grants or via the retailers through making it harder for retailer to disconnect.

Take action to lower overall system costs so that all customers are better off and the prospect of affordability concerns is lower consistent with the ACCC recommendations.

In a time of increasingly unstable weather patterns with extremes of hot and cold becoming the norm, the federal and state governments need to develop a national concessions framework to ensure a consistent and transparent approach to customer assistance that minimises cost for retailers and hence consumers.

The last time a review was conducted nationally was via COAG in 2007. 2018 needs to be a year of action.